The promotion of innovation in Fintech start-ups has been a goal of the Financial Conduct Authority (FCA) since it launched three years ago. Director of Strategy and Competition Christopher Woolard explains the motivation behind the Sandbox initiative, which helps new businesses enter the market without the usual regulatory barriers

Christopher Woolard is responsible for the FCA’s policy, strategy, competition, market intelligence, consumer issues, the Chief Economist’s department, communications and Project Innovate. He is chair of the FCA’s Policy Steering Committee, a member of the FCA Board and a non-executive board member of the Payment Systems Regulator

Q: Please tell us more about the FCA’s innovation initiative ‘Project Innovate’ to support Fintechs and other technology firms.

A: Since the launch of the FCA in 2013 we have looked to foster competition and new entry. Innovation forms a key part of this. Project Innovate has twin aims: on the one hand, providing direct support to innovators; and on the other, and just as importantly, using the feedback we get to take a good look and to improve our own policies and processes where appropriate to ensure that we are not creating barriers to competition.

Q: Could you tell us about the aims of the Sandbox initiative? Who can participate and what are the conditions for users?

A: We were the first regulator to launch a programme like the Sandbox anywhere in the world. Whether they’re start-ups or established providers, the Sandbox allows innovative firms to test out new business models in a controlled environment where consumers are suitably protected, but without incurring all of the normal regulatory consequences of engaging in those activities. We aim to facilitate new products and services coming to market, which might otherwise have struggled to progress beyond the concept stage.

Our criteria focus on whether there is genuine innovation; whether it is of benefit to consumers, either directly or indirectly; whether the idea is meant for the UK financial services market; whether there is a need for testing in the Sandbox alongside the FCA; and whether it is ready to test – in other words, being in a sufficiently advanced stage of preparation to mount a live test.
We will run a second application period for the Sandbox later this year.

Q: Is the FCA looking to include further jurisdictions other than the UK?

A: The Sandbox is open to non-UK firms, providing that the test is aimed at the UK market. We are only considering trials that fall within our jurisdiction, rather than innovations that are not intended for use in the UK.

Q: Could you tell us how the FCA is supporting Fintechs in the ‘RegTech’ initiative?

A: Listening to the technology and financial services industries, academics and consumers has been key.
We have a particular interest in working with those involved in developing technologies to improve regulatory reporting and data sharing – both between firms and between regulated firms and the regulator – and in making our Handbook more accessible.

There is strong interest in the FCA playing an active role to unlock the potential benefits of technology innovation in the Fintech community, using our convening powers to help bring market participants together on shared challenges.

One example was our TechSprint event in April. This two-day innovation event involved a cross-section of financial services providers and technology companies with an interest in how technology can help to address some of the intractable problems and challenges faced by consumers, particularly those who might be elderly, disabled or financially excluded, in accessing financial services. Teams were given 48 hours to come up with a prototype solution: facial and voice recognition with speech playback, multi-lingual capability and simplified command buttons featured heavily.

Q: Could you shed light on how the FCA is preparing Fintechs for forthcoming regulation?

A: Through Project Innovate we are able to foster innovative firms and guide them through the regulatory landscape. We offer support to innovator businesses that are looking to introduce groundbreaking or significantly different financial products or services to the market, including when they need assistance with an application for authorisation or a variation of permission.

Our Innovation Hub team offers guidance pre-authorisation and gets the firm to think about how best to prepare. Firms that have received initial support from the Hub will have their applications handled by a specialised Project Innovate authorisation process. After authorisation we will provide dedicated supervisory support for one year.

In the first year we supported 177 firms – just eight months later that number has increased to nearly 300; 26 of these firms are now authorised.
We have also provided over 80 informal steers – that is, fast and frank feedback on the regulatory implications of a business model.

Q: To what extent is the FCA collaborating/working closer together with other regulators around the globe? Can you learn from each other?

A: If we want the benefits of competition and innovation, we have to do what we can as a regulator to ensure firms can grow in scale globally and the most innovative firms come to the UK. A simple way to do this is through closer international cooperation. This year we have signed international cooperation agreements with the Monetary Authority of Singapore (MAS), the Australian Securities and Investments Commission (ASIC) and the Korean Financial Services Commission (FSC). These agreements allow us to share information or refer innovative businesses seeking to enter the other’s markets to provide support to innovative businesses before, during and after authorisation to help reduce regulatory uncertainty and time to market, and support innovative businesses to grow.

Q: How can the UK Fintech community maintain its momentum in uncertain times?

A: Since the launch of Project Innovate we have been impressed by the innovative approach the UK Fintech community has taken. Moreover, we will continue to work with and support innovators in the coming months through the first round of Sandbox applications, and by our direct support offer for firms.
The current regulation remains applicable until any changes are made, which will be a matter for Government and Parliament.

Q: How do you see the Fintech landscape evolving? What role do you think the FCA will take?

A: The only thing that is certain is the continued pace of innovation and development of technologies. We do not view the Fintech landscape favouring any particular sector or technology type. However, there are a number of important issues reflecting current trends. For instance, what are the benefits and risks of blockchain, and how can we effectively use RegTech in our regulatory reporting tool kit?
We will also continue to support new innovations, not only from start-ups, but also from large firms too. At the moment, innovation is occurring across the value chain of business, which presents a challenge for large firms due to disintermediation. But, established financial services firms will not want to face the same fate as the music industry a decade ago. Large firms should see Project Innovate as an opportunity to develop new ideas, rather than just new market entrants.

Christopher Woolard

Executive FCA Board member and Director of Strategy and Competition

Christopher Woolard

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